Internal Audit of Functions and Activities – Labour, Industrial and Environmental Aspect
Internal Audit Functions and Activities – To assure a decent work culture with the fulfillment of the company’s responsibilities & proper compliance of statutory audit rules, further additions have been made in Section 138 of the Companies Act, 2013. The section at present prescribes for regulations and manner of conduct of Internal Audit in the Companies.
Inclusion of provisions for Internal Audit of Functions and Activities – Labour, Industrial and Environment Aspect in Section 138 will help authorities to understand up to what extent companies have adopted governance and business responsibility in there compliance list and to what extent the principles adopted by the companies are followed.
The provision states for a critical analysis of operations of the company and presenting key observations while conducting audit analysis in a true and fair manner.
Some Suggested Parameters for Companies for Internal Audit Functions and Activities.
Some suggested parameters for companies to accompany in there internal audit reports under Section 138 can be :
- Review of Infrastructure and Facilities
- Review of the workplace, amenities provided, safety, health, and hygiene.
- Review of labor practices
- Review of environmental hazards etc.
For instance, a report generated with some parameters could be more trustworthy on the company’s practices when implied with statements like :
Parameter : Analysis:
Review Of Environmental Protection Aspects
Hazardous waste consent itself is not available since inception which was the observation even during the previous audit. Further, there was no process of training and education.
Handling procedures were not set out in a manual. Workers are exposed to dangers.
Regulatory risk; penalties and prosecutions; health hazards and dangers.
|Review Of Plant Maintenance Practices
Very poor consideration for standard maintenance practices of plant engineering equipment.
The breakdown of the transformer can happen at any time due to poor cooling and moisture content in the transformer oil. This will increase in the downtime and cause delivery delays and waste of resources until the same is made serviceable again
The above parameters or any other adopted parameters of companies can effectively take the possibility of governance to the next level. By opting the inclusion of parameters like above, a company will signify that :
- The management of the company is capable to readily accept audits of broader scope with the inclusion of any proposed changes in Section 138.
- Auditors appointed are experienced in studying records and analyzing situations, pointing out the key risk mitigation areas to management.
Impact on Governance
|Impact on Directors||Impact on Management|
|Ø Being the ‘audit of management’ with disclosures related to activities and functions, the board of directors (BOD) while furnishing there ‘ Director Responsibility Statement’ under Section 134 of Companies Act, 2013, will be able to present it in a more confident manner without fear of non-compliance or fear of facing penalties.
Ø Additional disclosures under Section 138 will enable the Independent directors working as non-executive personal to run business in a true, fair and transparent manner rather than only relying on affairs of executive affairs.
|Ø It will pull management for not fixing responsibilities for various tasks. For instance, putting people for getting faulty machines repaired or replaced.
Ø It will pull management to take care of the work floor or to adhere to practices to avoid hazardous incidents.
Ø It will pull management for not adhering to building regulations or for not marking emergency exit signs and for not offering training for fire, earthquake and other disaster management drills.
Ø It will pull management/workers for not ensuring that the workers do not wear protective equipment, headgears, goggles, gloves, and such things, etc.
A well-planned system of an internal audit conducted on internal activities and functions will establish a link of all activities with statutory laws. It is essential to identify which activities and functions are clerical, evitable/inevitable, critical, crucial, dangerous or hazardous for sound management of the company. Overall, these audits will enhance productivity, reduce tension and will raise standards of the companies.
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